While inflation appears to be easing, analysts caution that a rise in unemployment is possible when the latest jobs data is released on February 20.
Businesses across the country are struggling with a combination of declining revenues and rising costs. The latest reports from Deloitte Access Economics, JP Morgan, and the National Australia Bank (NAB) highlight the increasing financial strain on companies. Such pressures are especially felt by those operating in retail and hospitality
Australia’s economic growth has been sluggish, with GDP expanding by only 0.8 per cent in the 12 months leading up to September 2024. Deloitte’s analysis suggests that this slow growth is beginning to take its toll as businesses grapple with higher operating costs.
Despite these pressures, NAB’s Quarterly Business Survey indicates that many employers are still struggling to find the right workers. Labour shortages remain a significant concern, with wages a key factor influencing business confidence.
JP Morgan analysts warn that predicting unemployment trends has become increasingly complex due to shifting labour force participation. A notable trend in recent years has been the rise in “marginal attachment”, which means workers who have left jobs late in the year haven’t yet started new roles. This seasonal factor can influence employment figures, adding volatility to the upcoming data.
While the situation remains uncertain, JP Morgan economists suggest that weak GDP growth and a gradual rise in unemployment could continue into 2025. This could create conditions for further monetary policy adjustments.
Although businesses are still contending with cost pressures, NAB’s survey suggests that inflation is unlikely to accelerate again in 2025. The cooling demand environment has contributed to a slowdown in price growth, which may pave the way for interest rate cuts later in the year.
The extent of consumer recovery is uncertain, leading to cautious investment strategies by businesses. Deloitte’s Economic Policy Uncertainty Index has more than doubled since early 2024, reflecting ongoing concerns about future economic conditions. This uncertainty is impacting business investment decisions, which in turn affects economic growth and productivity.
Deloitte suggests policymakers focus on reducing economic uncertainty through clear communication and transparent decision-making. Enhancing institutional frameworks and providing businesses with greater confidence in future economic conditions could support more robust investment and spending.
As Australia navigates this period of economic transition, the focus will remain on balancing inflation control, employment stability, and sustainable growth. The upcoming labour market data will be a key indicator of the nation’s economic trajectory in the months ahead.
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